Well, it’s that time of year again, when almost everybody has made New Year’s resolutions. Soon, most will break a resolution or two (perhaps more) and many will just give up trying all together. It generally takes about 28 days for a new habit to become relatively permanent. It’s important to keep trying for at least a month to get on track towards a goal, and that’s exactly what a new year’s resolution is – a goal. It may help to understand the effect of certain actions on our financial resolutions:
If you carry a balance on a credit card, then you will pay much more for the item than you intended. Most credit cards have an annual interest rate charge in the neighborhood of 20%. Any new purchases while still carrying a balance from a previous month will also incur that interest charge. That sale price may not look so good after all.
If you do not have the right kinds and amounts of insurance, then you could face financial ruin. Even though auto insurance is required, most people wouldn’t dream of taking the risk of driving without it. However, many Canadians fail to adequately insure their most valuable asset – their ability to earn income. Without sufficient accident and sickness insurance, even a short absence from work due to illness or injury can wipe out any savings you have. Most mortgage foreclosures start this way.
Inadequate life insurance protection can mean serious financial upheaval for your family. Their lifestyle depends on the income you bring into the household. Without it, they may be forced to sell the family home or liquidate RSPs at an inopportune time making the financial hit even worse.
If you don’t save adequately for retirement, then you may not be able to retire when and how you want to. You have the young you and the old you money in your wallet. If you don’t send the old you money ahead, then it just won’t be there when you need it.
The Federal Government has several incentives to encourage you to save for your retirement. The main two are Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs). RRSPs offer tax-postponed growth and TFSAs, like their name suggests, provide tax-free savings arrangement. Work with your financial advisor to figure out how much needs to be set aside.
If you don’t have a rainy day fund, then you will be ill-prepared for the little disasters that occur from time to time. Experts agree that you should have a minimum of six months to a year of income set aside to deal with the financial hiccups that we will all experience. Credit card limits do not count.
If you don’t follow a budget, then you probably find yourself scrambling at the end of your paycheque or racking up credit card balances to get to your next payday. Without a plan, it’s far too easy to overspend and end up in the vicious cycle of carrying a balance.
If you don’t save regularly, then you may miss out on opportunities when they come along. Without some money set aside, you may miss out on starting your own business, getting an education upgrade, or moving into a better home or neighborhood.
Working with your financial advisor can make it much more likely that you achieve your goals.